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We followed a very tight weekly range in the euro two weeks ago, with another tight range this past week. Despite the continued chatter over Spain and Greece, the volatility in the EURUSD has been very subdued. The focus continues to be on China’s slowdown and a more skeptical view of improvements in the U.S. economy.

With another week passed since Europe has successfully removed itself from the top headlines in global news, this period of relative calm continues to bring lower volatility and choppy, rangy markets.

EURUSD -- (FXE, EUO, UUP)

In the EURUSD, the white channel in the chart below is the one we've been tracking most recently, as the slope of the downtrend in the euro, over the past eight months or so, accelerated into the end of last year and the beginning of this year.

Source: Bloomberg

Last week I said the bearish head and shoulders pattern we had been watching had become less interesting, and it was on the back of one of the narrowest weekly trading ranges in the euro in quite some time.

And I pointed to this 1.3290-1.3322 area as the critical area that needed to hold on the topside, otherwise the higher euro scenario would come into play. That area gave way this week (i.e. a break to the topside). So this higher euro scenario brings into focus the top channel line of this white descending channel. It was hovering around the 1.3487 double top a week ago from this past Friday. Now it comes in lower, around 1.3470, which provides the good level of resistance on top.

A move beyond the 1.3487 tops would create a c-wave scenario (of an ABC corrective Elliot Wave pattern), which would project a move up to the top line of the red channel.

Supportive of this higher EURUSD scenario is the implied volatility for the EURUSD option market.

Source: Bloomberg

The implied volatility is a key input in pricing options. It combines the market makers (and generally any counterparty to a trade) expectation of what actual volatility will be over a period of time in the EURUSD. Plus, it factors in an additional premium to compensate for the uncertainty surrounding that expectation. If those market participants that are taking the risk to sell an option are uncertain about their risk, they raise the price by increasing their expectation of volatility.

You can see the spikes on this implied volatility chart below, which represent periods of great uncertainty throughout this crisis environment -- the greatest of which surrounding the fallout from the Lehman Brothers failure in late 2008.